Result

• Result is significantly below expectations. Tambun Indah Land (TIL) recorded a core net profit of RM0.7m in its 2Q20 results, tumbling 94.0% yoy and 12.5% qoq. The Group achieved RM1.5m in its 1H20 core earnings (-93.1% yoy) which merely accounts for 5-6% of ours/street’s full year net earnings estimates. The huge letdown was mainly due to sales slump, lower progress billings coupled with weaker profit margin as a result of movement control order (MCO) pursuant to the Covid-19 pandemic.

Comment

• Dismal performance continued. TIL posted a significantly lower yoy and qoq results for this quarter on the back of sluggish revenue, -64.8% yoy and flat qoq, mainly due to minimal site progress for on-going projects as well as subdued new property sales. Also, the Group incurred higher financing costs in relation to earlier land purchase coupled with higher operational costs which dragged down its PBT margin by -34.4pts yoy and -3.5pts qoq. Likewise, the abovementioned reasons also bogged down its 1H20 topline, -62.6% yoy and bottom line, - 93.1% yoy with PBT margin slid -32.6pts.

• Silver lining of new sales. TIL chalked up RM34.1m new sales during 2Q20, rebounding strongly from 1Q20 new sales of RM9.1m and slightly below its 2Q19 sales of RM36.9m. Overall, the Group achieved RM43.2m sales during 1H20, which constitute 33% of its sales target of RM130m for this year. TIL believes that it will greatly benefit from the House Ownership Campaign 2020 (HOC 2020) scheme which started in June 20 and lasts till May 21. In fact, we have witnessed sales recovery along with the reopening of economy and buying interest is further supported by low mortgage rate. During this quarter, TIL had launched a new project named Ambay Park which comprised of 254 units of DS terrace houses in Pearl City.

• Sustainable earnings. As of 2Q20, TIL has six on-going projects which are Mutiara Indah, Palma Residensi, Palm Garden, Begonia Villa and Permai Residensi and Ambay Park with total GDVs of RM458m (with average take-up rate of 31%). In tandem with rising new sales during this quarter, TIL’s unbilled sales also increased to RM74.4m from RM55.0m in the previous quarter. This renders earnings visibility to the Group for the next 2 years.

• Expecting better 2H20. We envisage TIL’s top line and bottom line to normalise or improve in 2H20 onwards as impacts of the MCO and pandemic are faded along with better consumer sentiment towards ‘big-ticket’ items.

Earnings Outlook/Revision

• We slash our 2020F and 2021F core net earnings forecasts by 34.4% and 16.1% to RM18.4m and RM30.1m respectively after lowering our progress billings and development margins.

Valuation & Recommendation

• Maintain BUY on TIL with an unchanged target price of RM0.58. Our valuation is now based at 8.5x 2021F PE multiple (from 7x PE), which is in line with other small and mid-cap property counters’ valuations. We believe current share price has discounted its gloomy 1H20 performance.

• Decent dividend yield of 3-5% for 2020/21F. This is assuming DPS of 1.7sen/2.8sen for 2020/2021 with minimum dividend payout of 40%. We believe the Group will commit its dividend payment to reward long-term investors as we witnessed its final dividend payment of 2.9 sen/share for its FY19 (full year of 3.9 sen) amid many listed companies retreated or cut their dividend payments.

Source: JF Apex Securities Research - 28 Aug 2020